Marketing Principles Midterm #2 (Lucas)

Future of retail

"frictionless retail" - amazon go - amazon one - click and collect - electronic shelf labels digital advertising - signs, carts, doors, windows, kiosks special experiences - flagship stores - art galery - in store demonstrations greater focus on sustainability - package-less products - product labels with sustainability messaging 3d printing and social commerce

Break-even point

# of units to sell to cover total costs, profit are 0 at this point = fixed costs/ sales price per unit - variable cost per unit

Trademark Perspective of Branding

- traditional view of branding - brand is controlled by company - no mention of consumer - purpose is to identify source of product

Reputation Perspective of Branding

- view developed in recent decades - Brand is generally out of company's control - brand's meaning is assigned by consumer - consumer can be influenced by many sources

Six brand strategies

1. Brand ownership 2. Naming brands and product lines 3. Brand extensions 4. Co-branding 5. Brand Licensing 6. Brand repositioning

7-Step Personal Branding (Harvard Coursepack)

1. Define your purpose 2. Audit your personal brand equity 3. Construct your personal narrative 4. Embody your brand 5. Communicate your brand story 6. Socialize your brand 7. Reevaluate and adjust your brand

Determining where to sell a new product

Assess the product's characteristics, target market, and competitive landscape. Consider the most effective distribution channels based on the product's nature and customer expectations. Evaluate the distribution intensity, which relates to the number of intermediaries involved.

Naming Brands and Product Lines

Branded House: Using the company's brand on all or most products, creating a consistent brand identity. (less expensive, strong) (high negative impact if brand goes awry) - consulting/prof services - financial services - airlines House of Brands: Using different brand names for distinct product lines or divisions. - fast moving consumer goods - personal care products - food and beverage (more expensive, weak impact on parent brand) (low risk of negative impact if brand goes awry)

Understanding Customer Expectations

Conduct market research, surveys, and focus groups to understand where customers expect to buy a new product. Analyze consumer behavior and preferences to identify the most suitable distribution channels.

3 product components

Core customer value: basic problem-solving benefits that consumers seek Actual Product: Tangible and inherent features and qualities of the product that customers experience (durability, reliability, performance, features, design) Associated Services: additional features or services that enhance actual product (warranties, updates, service/support, installation)

Framework for Pricing Decisions

Cost to Produce: Understanding your production costs is essential in setting a baseline for your pricing strategy. This cost must be covered for the business to be sustainable. Selling Price: The final selling price to customers should not only cover costs but also reflect the perceived value in the eyes of customers. Margin: The margin between your costs and selling price is a key factor in determining profitability. Customer Willingness to Pay: Understanding what your target customers are willing to pay for the product is crucial for setting competitive and appealing prices. Customer Delight: Balancing price with the perceived benefits and delight that the product or service offers is essential for customer satisfaction. Impact of Competitors' Prices: Analyzing competitors' pricing strategies helps ensure your prices are competitive within the market.

Trends in Channel Management

D2C (Direct-to-Consumer): Manufacturers sell directly to consumers, bypassing traditional retail channels. Disintermediation: The removal of intermediaries in the distribution process to reduce costs and improve efficiency. Last-Mile Delivery: Focusing on optimizing the final stage of the supply chain to enhance delivery speed and convenience. Subscription Models: Offering products or services on a subscription basis, providing recurring revenue and fostering customer loyalty. Dropshipping: Retailers partner with suppliers to ship products directly to customers, reducing inventory costs.

Brand extensions

Deciding whether to use an existing brand for product line or category extensions or introduce new brands Factors Influencing Success of Brand Extensions: Consumer trust in the parent brand, category fit, and the ability to maintain the brand's core values and qualities.

Channel Strategies: Direct vs Indirect

Direct Channels: involve selling products or services directly from the manufacturer or service provider to the end customer. Advantages: control, customer data, elimination of middlemen Indirect Channels: involve intermediaries or third parties between the manufacturer and the end customer Advantages: market reach, expertise, cost efficiency

Choosing Retail Partners

Easier Product Introduction in Corporate and Contractual VMCs: control (manufacturer has full control of distribution) and collaboration (shared objectives in VMC's facilitate smoother product launches)

Goals of Supply Chain Management

Efficiency, cost reduction, quality improvement, timely delivery, flexibility

Shrink Product Mix

Eliminate existing product category, thus also reallocating resources to more profitable product lines

Growth Rate

Ending Value - Beginning Value / Beginning Value Let's say you're analyzing the annual revenue of a company. In 2022, the company'srevenue was $1.5 million, and in 2023, the revenue increased to $1.8 million. Tocalculate the simple annual growth rate for this revenue (1.8-1.5/1.5) x 100 = 20%

Category Extension

Expanding product mix by adding a whole new product category Pros: Diversify risk, capitalize on established reputation Cons: Market entry challenges, brand stretching risk

Example question

Explain the two perspectives on the definition of a brand.Highlight the benefits that a strong brand can bring to consumers.

Profit Oriented

Firms rely on this orientation generally is to maximize profits, often to fund product development or market expansion Upward pressure on prices Cost-Plus Pricing = cost + (Markup% for * Cost) Target Profit Pricing = Target profit/number of projects Target Return Pricing = investment * desired ROI

Sales Orientation

Firms rely on this orientation generally to expand market share or reduce excess inventory Downward pressure on prices EDLP: company sets consistently low prices instead of implementing sales and discounts Penetration Pricing: often used for new products; set initial price low to attract customers quickly, then increase prices after product acceptance Volume discounts: per-unit price of product decreases as quantity purchased increases Loss leader pricing: ideally a short term strategy: product sold at below cost to stimulate sales of other more profitable products

Costs

Fixed Costs: unaffected by production volume (lease/rent) Variable Costs: vary with production volume (materials, labor)

Framing in Packaging

Framing in product packaging involves the presentation and positioning of a product to influence consumer perception. It can create expectations regarding the product's quality, value, or purpose. Effective framing can significantly impact consumer purchasing decisions.

Characteristics of Luxury Packaging

High-quality materials Attention to detail Unique design Premium branding Unboxing experience

Shopping Products

Homogeneous: customers see little difference in quality and features and seek lowest price (cables, batteries, medications) (focus on convenient locations, online availability) Heterogeneous: consumers may need help deciding through salesperson; extensive problem solving (laptops, cars) (differentiate from competitors, invest in educational content)

Horizontal vs. Vertical Conflict

Horizontal conflict: Occurs between members at the same level of the distribution channel, such as competing retailers fighting for market share or territory. Resolution may involve setting clear boundaries, establishing territories, or collaborative marketing efforts. Vertical Conflict: Arises between members at different levels of the distribution channel, e.g., manufacturers and retailers disagreeing on pricing, product quality, or promotional strategies. Resolution methods include negotiation, the use of contractual agreements, and mediation to find common ground and preserve the relationship.

Example question

Imagine you're a marketing manager for a well-established consumer goods company that produces a popular line of skincare products. The company is considering expanding its product offerings to capitalize on emerging trends and increase market share. Discuss the potential benefits and drawbacks oftwo different strategies: product line extension and category extension. In your response, be sure to highlight the key difference between the two extension strategies.

Administered VC Power

In an Administered VMC, a dominant retailer like Walmart holds power by: Setting terms and conditions for suppliers and exerting control over pricing and shelf space. Influencing promotional strategies and supply chain practices. Leveraging its market presence to dictate terms to smaller suppliers.

Independent vs Vertical Marketing Channels

Independent Channels: involve unrelated businesses in the distribution chain; each member operates independently and makes its own decisions Vertical Marketing Channels: consist of different levels of channel members working together as a unified system; members cooperate to achieve common goals such as improving customer satisfaction

Considerations for Independent Marketing Channels and Administered VCMs:

Independent Marketing Channels: Need to convince independent retailers to adopt the new product. May require incentives, marketing support, and clear communication. Administered VCMs: The dominant retailer's approval or cooperation is crucial. Manufacturer needs to align with the retailer's goals and expectations.

Distribution Intensity and Consumer Products

Intensive Distribution: Consumer Products: Convenience goods (e.g., snacks, toiletries). Product Life Cycle: Introduction and growth stages. Strategy: Widespread availability to maximize reach. Selective Distribution: Consumer Products: Shopping goods (e.g., electronics, clothing). Product Life Cycle: Maturity stage. Strategy: Careful selection of retailers to maintain product exclusivity and control. Exclusive Distribution: Consumer Products: Specialty goods (e.g., luxury items, high-end jewelry). Product Life Cycle: Decline stage. Strategy: Limited, exclusive availability through a small number of high-end retailers. Selective/Exclusive Hybrid: Some products may combine elements of both selective and exclusive distribution based on specific market conditions and product categories.

Product Launch Failures

Key reasons: Insufficient market research leading to a poor understanding of customer needs. Inadequate product testing and quality control, resulting in issues or defects. Weak marketing and promotion, leading to low awareness and demand. Intense competition or market saturation. Failure to adapt to changing market conditions or consumer preferences.

Service Gaps Model

Knowledge gap: customers expectations vs firms perceptions of those expectations Close gap by doing research to determine what customers actually want Standards Gap: firms perceptions of customer expectations vs firms service standards Close gap by setting appropriate standards, train employees Delivery Gap: Firms service standards vs actual service provided Close gap by empowering employees to respond in moment Communications Gap: actual service provided vs. promises in firm's promotion program Close gap by setting realistic expectations in promotion

Illegal Mass Pricing Strategies

Loss Leader: a pricing strategy where a retailer sells a product at or below its cost to attract customers into the store. However, once in the store, customers are encouraged to purchase other, more expensive products. Deceptive Reference Price: involves providing a reference price, often called a "compare at" price, that misleads consumers into thinking they are getting a better deal. Bait and Switch: when a retailer advertises a product at an attractive price to lure customers into the store. Once there, the advertised product is unavailable or of inferior quality, and the retailer pushes customers to buy a more expensive alternative.

Lululemon positioning statement

Lululemon positions itself as a premium athletic and lifestyle brand that is dedicated to empowering individuals to lead active and mindful lives. By offering high-quality, innovative activewear, combined with a unique retail experience, Lululemon targets individuals who seek functional, stylish, and comfortable apparel that supports their active and wellness-focused lifestyles.

Brand ownership

Manufacturer Brands: brands owned and managed by manufacturer (national brands) Retailer Brands: Brands developed and marketed by retailer (private-label brands)

Manufacturer vs. Consumer Objectives

Manufacturer: main objective is to maximize production and minimize production costs. Consumer: seek convenience, product variety, and easy access to products.

Unsought Products

New Unsought: need for product strongly felt; unaware of benefits (new vaccines, new treatments) (launch comprehensive educational marketing) Regularly Unsought: aware of product but not interested; possible negative attitude (gravestones, life insurance) (very aggressive promotion)

New Product Development

New product development involves six steps: Idea Generation: Collecting and screening product ideas. Concept Testing: Evaluating the viability of product concepts. Product Development: Creating a prototype or model. Market Testing: Evaluating the product in a controlled market setting. Product Launch: Introducing the product to the market. Evaluation of Results: Assessing the product's performance and customer feedback.

Variations of "new products"

New to the World Product: These are groundbreaking, pioneering innovations with no direct competitors initially. They have the potential for first-mover advantages but also involve educating the market. New-to-the-Company Product: These products already exist in the market, but the firm is introducing them for the first time. Extensions in Existing Product Line: This involves adding new variations or flavors to an existing product line, allowing the company to leverage its established brand. Improvements and Revisions: Enhancing existing products with upgrades, improved features, or quality enhancements. Repositioned Product: Changing how an existing product is marketed or who it's targeted toward to access new markets or customer segments.

Competition

Perfect Competition: products are identical and many buyers/sellers exist. Price determined by market forces and firms are price takers Monopolistic Competition: many firms sell similar but not identical products. Firms have some control over pricing due to product differentiation. Oligopoly: few large firms dominate market, products can be similar or differentiated. Pricing influenced by behavior of major players Monopoly: single seller with no close substitutes, most extreme form of differentiation. Single firm has significant control over pricing.

Packaging Types

Primary Packaging: This is the packaging in direct contact with the product. It serves to protect the product during its use, and it often includes branding elements. Secondary Packaging: This packaging holds the primary packaging and multiple units of the product. It provides additional protection and may include branding and product information. Tertiary Packaging: Tertiary packaging is used for transportation and bulk handling, such as pallets or crates. It ensures safe distribution to retailers.

Packaging Benefits

Protect: Packaging safeguards the product from physical damage, contamination, and deterioration. Promote: Packaging serves as a marketing tool, conveying brand identity and product information to consumers. Enhance: Innovative packaging can enhance the user experience, such as resealable bags for snacks or easy-pour spouts for liquids.

Factors Accelerating Adoption

Relative Advantage: The new product's perceived superiority. Compatibility: How well the product fits into users' existing practices. Observability: The extent to which the benefits are visible to others. Complexity: The ease of understanding and using the product. Trialability: The ability for potential customers to try the product before committing.

Types of Retailers

Single-line and limited-line retailers: Speciality shops Department stores Convenience stores Automatic vending Home Shopping Mass Merchandisers: Supermarkets Mass merchandisers and supercenters Warehouse clubs Single-line mass merchandisers (category killers)

Specialty Products

Specialty- customer makes special effort to purchase product (high end fashion, art) (establish strong brand image that conveys uniqueness, good customer service)

Convenience Products

Staples: purchased regularly and without much thought or effort (bread, milk) (widespread distribution through various channels) Impulse Products: Bought quickly as unplanned purchases (chocolates, gum, snacks) (position products near checkout counters) Emergency Products: bought in unexpected or urgent situations (first aid kits, flashlights) (ensure products are readily available)

Supply Chain Elements

Suppliers, Manufacturers, Distributors, Retailers, Customers

Trend Toward Simpler Packaging

There is a growing trend toward minimalist and eco-friendly packaging. This involves using fewer materials, reducing waste, and adopting straightforward designs.

Example question

Think of a new specialty product you'd like to launch in the marketplace. Demonstrate your understanding of product components by listing those components and applying each of them to your new product. Highlight two marketing considerations for your specialty product that are unique among the marketing considerations for other product types.

Services Marketing Mix

Traditional 4P's (product, price, place, promotion) + presentation, personnel, processes

Lululemon threats and plan

Under Armour: Under Armour poses a threat to Lululemon due to its focus on performance-driven athletic wear. They compete directly in the activewear segment and appeal to athletes and fitness enthusiasts. Athleta: Athleta, as a subsidiary of Gap Inc., is another formidable competitor. Athleta specifically targets women and promotes a sense of empowerment and sustainability. Lululemon faces the risk of losing customers to Athleta, especially those who are environmentally conscious and looking for activewear with a strong social and ethical commitment. Growth Plan: product diversification, global expansion, sustainability initiatives, collabs/partnerships, innovative retail experiences

Elastic and Inelastic Demand

When PED > 1, demand is considered elastic, meaning that consumers are highly responsive to price changes. Ex: luxury goods, high-end electronics When PED < 1, demand is considered inelastic, meaning that consumers are not very responsive to price changes. Ex: necessities

Cumulative Annual Growth Rate

[(Ending Value/Beginning Value)^ (1/Number of years)] -1 Let's say your revenue was $1 million at the beginning of a 5-year period and grew to$2 million at the end of those 5 years. The CAGR would be calculated as follows: CAGR = [(2,000,000 / 1,000,000) ^ (1 / 5)]

Pure Competition to Monopolistic Competition

a manufacturer can move from pure competition to monopolistic competition through aggressive product differentiation. For example, Morton's Salt differentiates its product with the iconic "When It Rains It Pours" slogan, distinctive packaging, and quality reputation. This move allows the firm to charge higher prices than would be possible in a pure competitive market.

Brand Repositioning

a strategy in which marketers change a brand's focus to target new markets or realign brand's core emphasis with changing market preferences Pros: can boost brand's fit with target segment or boost vitality of old brands Con: can be extremely expensive

omnichannel strategy

aims to create seamless and integrated customer experiences across all channels

Service

any intangible offering that involves a deed, performance, or effort that cannot be physically possessed

Product

anything that is of value to a consumer and can be offered through a voluntary marketing exchange

5C's of Pricing

competition, costs, company objectives, customers, channel members

Why firms create new products

competitive advantage, market growth, customer demand, tech advancements, sustainability

Characteristics of omnichannel strategy

consistency of brand message, visual identity, and tone; easy transition between channels without experiences gaps in service; capture of customer data across all channels; personalized content and recommendations; cross promotions across channels Challenges: inconsistent pricing out of stock items poor customer data integration inconsistent branding and messaging

Product Life Cycle

consists of four phases: introduction, growth, maturity, and decline Introduction: Sales are low, profits may be negative, and innovators are the main customers. Growth: Sales rapidly increase, profits rise, and early adopters join. Maturity: Sales plateau, competition intensifies, and early and late majority customers dominate. Decline: Sales decrease, profits fall, and laggards may be the only customers. * not all products follow the same life cycle curve

Types of consumer products

convenience products, shopping products, specialty products, unsought products

Customer Orientation

customer sets prices based on customer input about value they're deriving from product and based on customer behavior High-low pricing: company offers products at high prices, but then discounts them through promotions and sales, then returns them to high prices, then to low, and so on Value-based pricing: determined by how much value the product provides to the customer; requires extensive customer engagement to understand what value they place on different product features Premium Pricing: plays on consumers' desire for luxury and prestige; product prices significantly above market average; enhances brand perception, but limits available market to wealthier consumers Price Skimming: often used for new products; price starts high for innovators and early adopters and then price lowers to appeal to early majority and late majority Dynamic Pricing: adjusts prices in real time or frequently based on market demand and other external factors Psychological Pricing

Diffusion of Innovation

explains how new products are adopted by consumers and spreads into the market Identifies five customer segments: Innovators: Risk-takers who adopt new products first. Early Adopters: people who quickly embrace innovations. Early Majority: people who adopt after seeing the benefits. Late Majority: people who adopt when a product is widely accepted. Laggards: people who resist change.

Vertical Line Extension

extend a brand up into more premium market segments or down into more value-conscious segments pros: improve brand image, offers variety for consumers cons: can confuse or frustrate consumers, possibly harmful to brand image (lower price association)

Competitor Orientation

firm measures itself against competitors rather than aiming to maximize profit or accelerate sales key issue is determining where among competitors a firm's price should be (highest, average, lowest) and whether and how to adjust firm's price when competitors adjust theirs

Product Line

groups of associated items, consumers link of part of a group

Characteristics of Services + Marketing Implications

intangibility - emphasize tangible elements to build trust; effective communication inseparability- educate service personel to deliver high quality experience variability- train employees to minimize variability, encourage customer feedback perishability- implement dynamic pricing strategies, utilize promotions/incentives

Product Line Extension

introduce new products to line (often with different flavors, ingredients, colors, features, sizes) Pros: To attract buyers with different preferences, leverage brand equity Cons: product cannibalization, customer confusion

Co-branding

marketing two of more brands together, on same package or promotion - reinforce perceptions of quality between brands -makes most sense when customers of each brand are similar

Price Elastiticity of demand

measures how sensitive the quantity demanded of a product is to changes in its price. It is calculated using the formula: PED = [(Qnew - Qold/ Qold)] / [Pnew - Pold/ Pold)] apply absolute value

Cross-Price Elasticity of Demand (complementary products)

measures how the quantity demanded of one product changes in response to a change in the price of another related product.

Product Line Depth

number of product items in the product line

Product mix breadth

number of product lines offered

Brand Licensing

one firm allows another to use its brand, name, logo, symbols, or characters for a negotiated fee - depends on quality of licensee's production/service - depends on reputation of retailer locations where sold

Price

overall sacrifice consumer is willing to make - money, time, energy - to acquire specific product

Uniqueness of Price among other 3P's

price influences product's positioning in product category (higher price = higher quality); offers fastest competitive response; once set, difficult to change in consumer's mind; only element that generates revenue (captures value); best pricing approach captures consumer's perception of value (somewhere between too expensive and too low)

Brand equity equation

price of branded item - price of generic alternative

Company Objectives

profit oriented, sales oriented, competitor oriented, customer oriented

Service -to-Product Continuum

pure services at one end (education/healthcare) and pure products at the other end (physical goods like smartphones)

Channel Members

recognize that intermediaries aim to generate profit as they resell a manufacturer's product, and it's important to select intermediaries with objectives similar to the manufacturer's, e.g., to maximize market share or to maximize profit.

Place

refers to all organizations and activities required to get right product to right customer when the customer wants it

Brand identity

refers to how a brand portrays itself and is perceived by consumers Criteria for choosing brand elements: - memorability -meaningful -likeability -transferable -adaptable over time -protectable

The Chasm

represents the gap between early adopters and the early majority in the diffusion of innovation. Crossing this chasm is a significant challenge for product adoption, requiring a different approach to marketing and positioning.

Customer

someone who pays for goods or services

Product Mix

the complete set of all products offered by a firm

Brand equity

the difference that a customer's knowledge of a brand has on a customer's decision whether to purchase product from that brand = brand awareness (brand recognition, unaided recall, top-of-mind recall, dominant recall) + brand associations (consideration set, strong favorable associations) + perceived value (benefits vs. price) + brand loyalty (repurchase amount)

Innovation

the process by which ideas are transformed into new products that will help firms grow

Capacity Utilization

units produced/total capacity possible If the number of units produced annually were 10 million, and the total production capacity possible were 20 million units, then capacity utilization would be 10/20, or5 0%

Substitution Effect

where consumers switch to a substitute product when the price of the original product rises.

Intermediaries

wholesalers and retailers, they bridge the gap between products and end consumers